2017 – 4th Quarter Newsletter

2017 was eventful to say the least. The stock market saw several benchmark indexes reach record highs throughout 2017 with market growth occurring despite several events that could have been challenging, such as the Russian probe, Federal interest rate increases, damaging hurricanes, and a potential struggle over the debt ceiling. Nevertheless, strong corporate profits and a general upswing in domestic and global economic growth helped push equities to new highs. The Dow closed the year with a gain of 28.11%, while the S&P 500 expanded 21.83% and the Nasdaq gained 28.24% over last year’s closing value, driven by robust performances from the technology sector. US Small caps, as measured by the Russell 2000, which grew over 19% in 2016, enjoyed a more modest, yet noteworthy, year-over-year climb of 14.65%. Globally, stocks also closed out 2017 with magnificent gains with the MSCI EAFE up 25.03% and Emerging Markets up a whopping 37.28%. Despite the interest rate increases in 2017, bonds were able to post a positive return of 3.54% for the year as measured by the US Barclays Aggregate Bond Index.

Looking ahead, 2018 is off to a rousing start with the passage of major tax overhaul legislation via the Tax Cuts and Jobs Act that could impact consumer and business income and equities. The U.S. economy, as well as major world economies, are expected to continue to grow in 2018 despite stubborn inflationary expansion.

Increases the standard deduction to $12,000 for individuals and $24,000 for married couples

Removes phaseout of itemized deductions

Eliminates miscellaneous itemized deductions

Limits State and Local and Property Tax deductions to $10,000 in aggregate

Expands the child tax credit to $2,000 per qualifying child and increased the phaseout limits to $200,000 for individuals and $400,000 for married couples

Limits mortgage interest deduction to $750,000 of acquisition indebtedness for loans taken out after December 15, 2017

Eliminates the interest deduction for home equity indebtedness without any grandfathering provisions

Allows 529 plan distributions to be Federally tax-free ($10,000 per student per year) if used for elementary or secondary school expenses for both public, private and religious schools

Expands the charitable contribution limit for cash donations to 60% of AGI, up from 50%

Reduces the AGI threshold for deducting medical expenses to 7.5% for tax years 2017 and 2018

Reverses the tax treatment for alimony – alimony will no longer be deductible to the payor or taxed as income to the payee for divorces after December 31, 2018

Retains AMT, but increases both the exemption and phaseout limits

Key Cost of Living Adjustments for 2018

Employer retirement plans

Employees who participate in 401(k), 403(b), and most 457 plans can defer up to $18,500 in compensation in 2018 (up from $18,000 in 2017); employees age 50 and older can defer up to an additional $6,000 in 2018 (the same as in 2017).

IRAs

The limit on annual contributions to an IRA remains unchanged at $5,500 in 2018, with individuals age 50 and older able to contribute an additional $1,000. For individuals who are covered by a workplace retirement plan, the deduction for contributions to a traditional IRA is phased out for the following modified adjusted gross income (AGI) ranges:

2017

2018

Single/head of household (HOH)

$62,000 – $72,000

$63,000 – $73,000

Married filing jointly (MFJ)

$99,000 – $119,000

$101,000 – $121,000

Married filing separately (MFS)

$0 – $10,000

$0 – $10,000

The 2018 phaseout range is $189,000 – $199,000 (up from $186,000 – $196,000 in 2017) when the individual making the IRA contribution is not covered by a workplace retirement plan but is filing jointly with a spouse who is covered.

The modified AGI phaseout ranges for individuals to make contributions to a Roth IRA are:

2017

2018

Single/HOH

$118,000 – $133,000

$120,000 – $135,000

MFJ

$186,000 – $196,000

$189,000 – $199,000

MFS

$0 – $10,000

$0 – $10,000

Estate and gift tax

The annual gift tax exclusion for 2018 is $15,000, up from $14,000 in 2017.

The gift and estate tax basic exclusion amount for 2018 is $11,200,000, up from $5,490,000 in 2017.

If you, or anyone that you know, have any questions on the market or how the changes to the tax code might impact you, please give us a call at 209-957-7413 or email info@financialdecisionsinc.com.

Tolen Teigen

Tolen is part owner of Financial Decisions and serves as the Chief Investment Officer and Chief Compliance Officer. In his current role, Tolen is responsible for overseeing the investment portfolios for individual and institutional clients and specializes in retirement planning, estate planning, and tax minimization strategies. In addition to these areas of expertise, he also oversees the firm’s compliance mandates.